Next year, Mexico aims to join the growing number of governments around the world with formal carbon markets.

In this cap-and-trade system, a government limits the carbon pollution companies can release. But some companies are dependent on old technology and cannot easily reduce their emissions. Rodolfo Lacy, Mexico’s Deputy Minister of the Environment, says those heavy polluters can purchase the right to emit more carbon.

Lacy: “The buyers will be the big emitters, like the power plants, the iron and steel factories.”

Sellers will be companies that succeed at emitting less than their permit, or those that do projects like tree plantings that reduce carbon pollution.

This provides an economic incentive for companies to go above and beyond what’s required. And because there are only a limited number of carbon allowances, and the total number may decrease over time, the system incentivizes companies to reduce carbon pollution.